COST ACCOUNTING
ACTIVITY BASED MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The level of complexity increases when the system is used for both activity management and product costing
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ABC offers inaccurate costing information
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It can be very costly to maintain an ABC system
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ABC distorts pricing decisions
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Detailed explanation-1: -The disadvantages of the ABC method include it being expensive to implement, as well as maintenance, being a time-consuming process, being used only for internal reporting, and having the possibility of some excluded costs.
Detailed explanation-2: -Activity based costing systems are more accurate than traditional costing systems. This is because they provide a more precise breakdown of indirect costs. However, ABC systems are more complex and more costly to implement. The leap from traditional costing to activity based costing is difficult.
Detailed explanation-3: -The main costs and limitations of an ABC system are the measurements necessary to implement it. ABC systems require management to estimate costs of activity pools and to identify and measure cost drivers to serve as cost allocation bases.
Detailed explanation-4: -Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.